Is It Time to Buy Dangdang Stock?

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Chinese e-tailer Dangdang (NYSE: DANG  ) will soon release another version of its e-reader in an effort to stay relevant in China's e-commerce space. But is it too late? Or should you pick up a few shares before Dangdang pops? Here's what you need to know about Dangdang right now.

How Dangdang lost
Since going public in December 2010, Dangdang has lost almost all of investors' money -- to date, the company has returned negative-80%! Looking back, it's not surprising why Dangdang has seen so much trouble: Competitor Alibaba made two smart bets on Chinese e-commerce.

First, Alibaba decided not to charge buyers or sellers any fees. Instead, the company made and continues to make its money on online advertising and enhanced selling features such as nice-looking virtual storefronts. By doing so, Alibaba understood one key thing: Chinese buyers and sellers are, according to The Economist, stingy, but willing to pay for value.

Second, Alibaba got the Chinese to trust each other online with Alipay. Unlike PayPal, the company holds on to the buyer's money to show the vendor that the money has been paid. In turn, the buyer has assurance that no money is paid until the vendor completes the transaction. In doing so, the company was able to dominate the business-to-consumer as well as the consumer-to-consumer market.

It's these kinds of bets that have helped keep Alibaba ahead of the pack. Not even (NASDAQ: AMZN  ) with its innovative prowess was able to translate its dominance from the U.S. to China. Currently, the company comes in at fourth place, with a dismal 2.2% of the e-commerce market. Dangdang stands fifth with 1.6%. Given the size of China's e-commerce market, that 0.6% difference amounts to $1.1 billion!

However, that doesn't mean Dangdang can't climb its way back.

How Dangdang could fight its way back
While Alibaba has moved into the smartphone marketplace, it hasn't moved into the fast-growing e-reader space. That's great news for Dangdang.

According to Analysys International, a Beijing-based IT consultancy, the e-book market will reach $1.3 billion by 2014. That's 52% growth from 2012. As Dangdang stands at a market cap of $944 million, capturing this market could provide a huge boost to its stock -- if Dangdang plays its cards right. So far, Dangdang seems like it will.

On July 15, Dangdang will launch its Duocon e-reader in China. Though Amazon China may have beaten Dangdang to the punch by launching its Kindles last month, the Duocon seems to have better key features at a cheaper price.

Dangdang Duocon

Amazon Paperwhite





HD e-ink display

E-ink display

8 GB of storage

2 GB of storage

Dangdang Duocon info via The Digital Reader. Amazon Kindle info via The Next Web.

Perhaps just as important, if not more, is that Dangdang's e-book store is far bigger than the Chinese Kindle store -- with more than double the number of e-book titles!

Of course, Dangdang still has to worry about Apple. In fact, in April, Dangdang CEO Li Guoqing confessed that the Cupertino company is the biggest threat to domestic e-readers, as the Chinese have a fondness for stylish Apple products.

While Apple has released its iPad Mini this year and seems to be creating an e-reader -- Apple filed a patent for hybrid LCD/e-ink display -- Dangdang has time. Unlike in the past, there are few rumors that Apple will launch anything new soon, and it's doubtful that it can. Currently, the company is undergoing a lot of scrutiny from the Chinese government, which would further delay any product launch.

So, should you invest?
While Dangdang has a great opportunity in e-readers ahead of it, so do many other companies. Alibaba and Apple could both enter the market and easily crush Dangdang. Moreover, Amazon is still schooling Dangdang in the broader e-commerce market -- meaning Amazon can use its advantages to beat out Dangdang's Duocon.

Nonetheless, Dangdang's product and e-book are promising. So, for now, I'd hold the stock.

However, that doesn't mean you need to wait on the sidelines. Just think of how much our lives have been molded by a handful of companies like Amazon and Apple. That's why The Motley Fool has put together a free report on "Who Will Win the War Between the 5 Biggest Tech Stocks." If you'd like to know which is the one company you can invest in now for a richer retirement later, click here now.

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